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DEVELOPMENT: Indebted Countries Await Word on G8 Pledge

Shirin Shirin

WASHINGTON, Sep 19 2005 (IPS) - When the world’s finance ministers converge on Washington for the annual meetings of the World Bank and the International Monetary Fund (IMF) this week, they will determine the fate of an unprecedented proposal set forth by the richest countries of the world regarding their relationship with the poorest.

For over six decades, the gathering has been a major event for both governments and civil society, as the policies of these International Financial Institutions (IFIs) impact the economies of countries around the globe.

This year’s meetings, which run Sep. 24-25, hold special significance. In July, the Group of Eight (G8) most industrialised countries agreed to cancel the debt of 18 of the world’s poorest countries, owed to the World Bank, the IMF and the African Development Bank.

The G8 proposal will be debated at the upcoming meetings, which will determine whether it will be implemented or not. Doubts are being raised both within the institutions and among civil society organisations about the future of this debt cancellation offer.

According to an internal World Bank report leaked last week, this debt relief – amounting to about 40 billion dollars – could seriously deplete the resources of the International Development Association (IDA), the World Bank agency that gives some nine billion dollars a year in concessional loans to poor countries.

Also noteworthy is that countries like Belgium, Norway, Switzerland and the Netherlands oppose full debt cancellation without conditions, and want sterner conditions to be attached to any future debt relief proposals.

In view of questions raised with regard to the leaked report and the strong opposition of some rich countries to the proposal, Thomas Dawson, the IMF’s director of external relations, said on Sep. 13 that he did not see “working on this issue that anything is falling apart”.

“[The] bulk of the resources for debt relief involving the IMF under the G8 proposal come from resources that are within the Fund itselfà much of the money is already there”, he said.

However, there have been no official statements from the Bank or IMF to confirm that the debt cancellation is going to come about. U.S. Treasury Department spokesman Tony Fratto added to the tension by stating on Sep. 13 that the G8 deal may be in “jeopardy”.

A major hurdle in getting the deal passed is that while the G8 together controls more than 50 percent of the voting shares in both the World Bank and the IMF, decisions of this kind require a super-majority of 85 percent of the votes. As Europe controls many of the votes, non-G8 European members may well be a stumbling block to achieving implementation of the deal.

The G8 is made up of Russia plus the Group of Seven (G7) most industrialised nations: Britain, France, Germany, the United States, Japan, Italy and Canada.

If the deal does not go through, it will be a disappointment not only for the 18 countries in question but also for the other extremely poor countries of the world, where the majority of people survive on less than one dollar a day, meaning they are a victim of abject poverty according to the IFIs’ own definition.

Civil society groups believe that repaying debts to the IFIs is preventing a large number of countries from attaining the Millennium Development Goals (MDGs), which include halving extreme poverty and hunger by 2015.

Failure to approve debt cancellation would almost certainly bring severe criticism of the G8 for not acting on its promises.

Although the debt cancellation proposal is tied to the highly controversial Heavily Indebted Poor Countries (HIPC) Debt Initiative of the Bank and IMF, many, including their critics, view the move as positive. All 18 countries whose debts may be erased have fulfilled HIPC conditions such as large-scale privatisation of their state enterprises.

The Bank and IMF have admitted in their own assessment that HIPC has not succeeded in its aim “to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries” and “freeing up of resources for increased social sector expenditures”.

A 2003 report of the Bank’s Operations Evaluation Department said that the HIPC Initiative “faces the risk of promising outcomesà that it cannot deliver by itself”. In light of this failure, 100 percent unconditional debt cancellation is all the more important, say civil society groups.

“Now we have a clear test for the G8,” says Njoki Njehu of Solidarity Africa Network in Action, a Kenya-based NGO. “Will they stand by their word, or will they take the path of least resistance and devise ways to return to the status quo while devising rhetoric to try to preserve the points they scored with new constituencies in June?”

Of the 18 countries cleared for debt cancellation, 14 are in Africa and four in Latin America and the Caribbean. According to the Britain’s Make Poverty History campaign, at least 62 countries require debt cancellation if they are to have any chance of meeting the MDGs.

For many civil society organisations, objections raised by rich countries about depletion of the resources available to the Bank and IMF are “excuses” to wriggle out of the commitment made in July.

According to Debayani Kar of Jubilee USA, “Studies have shown that the World Bank and the IMF can cancel the debts of more than 30 countries without significantly affecting their finances.”

Despite welcoming the G8 announcement in July, groups working on debt issues have been sceptical about its future from the very start. They have kept up the pressure on the IFIs through campaigns to urge them to fulfill the debt cancellation commitment and expand the proposal to include other countries as well.

While the Bank and IMF prepare for their annual meetings, thousands across the country and around the world are planning to demonstrate their support of 100 percent debt cancellation in Washington on Sep. 24. This will be one of the many messages on display in the civil society march against the Iraq war and what activists term the “economic war” against the poor of the world.

Ann-Louise Colgan of Africa Action, a Washington-based group, says, “We know that even the limited G8 proposal on debt relief faces challenges ahead of next week’s meetings, but the eyes of the world are on the World Bank and IMF, and campaigners throughout the Global South and across this country will not allow the world’s rich countries to backtrack on their commitment.”